Creditors’ Voluntary Liquidation (CVL) is a formal insolvency process for companies that can’t pay their debts. Our experts have created this guide to explain how a CVL works, when it’s appropriate, the step-by-step process, directors’ responsibilities, any employee implications, costs and timelines to help you decide the best course of action.
What Is Creditors’ Voluntary Liquidation?
You may be asking yourself, what is Creditors’ Voluntary Liquidation? In the simplest terms it is a formal process instigated by the company directors to close a business that can’t pay its debts. It stops creditor action, reduces director liability and involves selling assets to pay back creditors.
The Creditors’ Voluntary Liquidation Process
A Creditors’ Voluntary Liquidation (CVL) follows a clear legal structure.
- Directors recognise that the company is insolvent and cannot meet its financial obligations.
- Then, they appoint a licensed Insolvency Practitioner to act as liquidator.
- A directors’ meeting is held to pass the necessary resolutions to wind up the company.
- Creditors are formally notified and invited to participate in the process for full transparency.
- The liquidator then audits the company’s assets, investigates conduct and distributes funds to creditors where possible.
- Finally, the company is dissolved and removed from the register at Companies House.
What Happens to Company Directors in a CVL?
When a company starts the CVL process, directors effectively lose control of the day-to-day running of the business and the appointed liquidator takes over. The Liquidator conducts an impartial investigation of director conduct in the time leading up to the insolvency. Any personal guarantees or overdrawn director loans remain enforceable and must be repaid, and unless they are disqualified, the directors in question are able to hold that position again in the future.
How Are Creditors Treated During A CVL?
During the CVL insolvency process, it is secured creditors who will be paid back first from the sale of any secured assets the business may have. Unsecured creditors, typically trade suppliers, will be repaid according to a statutory hierarchy. It is common for unsecured creditors to only receive a percentage of the capital owed to them, with secured creditors and HMRC claims taking precedent.
Pros and Cons of A Creditors’ Voluntary Liquidation
Advantages
Moving forward with the CVL insolvency process does have multiple benefits.
- Once the CVL begins, any and all legal action from creditors will be dealt with by the Liquidator.
- This process allows for a more orderly “wind-down” rather than a sudden, rushed closure.
- It is a cheaper and faster process than compulsory liquidation.
- Has the potential to protect directors from wrongful trading claims that can damage their reputation.
Disadvantages
CVL insolvency isn’t always the best course of action for a business, however.
- The biggest disadvantage is that the business will be closed, leaving people without jobs and customers without their goods or services.
- Both directors and the company may face some long term consequences to their credit history.
- Unsecured creditors may only receive a partial payment of what they are owed, which could have significant ripple effects.
- Employees may lose their jobs or face redundancy.
What Happens After a Creditors’ Voluntary Liquidation?
Once the CVL process has been completed, the company will typically be fully dissolved within 3-6 months. The directors are required to keep any business records for a minimum of six years and while they can start a new business, must avoid acting in any fashion that could breach disqualification rules. Each case is different and there may be other restrictions and rules depending on what was uncovered during the initial investigation procedures.
Would A CVL Be Right for Your Business? Speak To Our Professionals Today!
Deciding on a Creditors’ Voluntary Liquidation is complex and can have long-term implications. Griffin & King’s experienced CVL insolvency team can guide you through your options, protect your interests and help you make informed decisions.
Call us on 01922 722 250, email us at enquiries@griffinandking.co.uk or visit our contact page to arrange a confidential, complimentary consultation today.
